Financial Panic Ends and Peak Oil

With the market turmoil settling down and the global credit contraction now essentially stabilized, we can now address the more important long term ramifications of what is happening out there. The global banking system is now going to face a uniform regulatory regime that will be organized and regulated to prevent the system ever been gamed again out of sight from the political masters as it should be. It will take this coming year to put the systems in place to assure that this is so. The result will be a recovery of global confidence in the financial system over the succeeding years.

The current credit contraction induced by banks not lending to banks will take another six months to fully unwind but it will as the banks become more comfortable that the losses have been realized and paid for. Business will struggle to loosen their lending lines during this period and consumers will be paying down credit card debt.

We can expect the actual business expansion to get under way in the late spring and be in full swing for the Christmas season. There should be lots of good news developing in the financial sector and continuing into the next year.

In other words, the good news is that the financial panic is now over and the restoration of business as usual will quickly heal a lot of wounds. The market mavens can expect anticipatory market activity beginning in the new year a few months ahead of tangible news. There will still be plenty of business failures to absorb but that is already factored in.

The bad news is that Peak Oil has not gone away. I am sure that you have all forgot about that. Over the next four years the globe is set to lose millions of barrels per day of production. In fact we should lose about 35,000,000 barrels per day over the next fifteen years and achieve a real plateau around 50,000,000 barrels per day thereafter supplied a third from Canada, a third from the Middle East and a third from everyone else.

This is an emergency that the oil industry cannot fix by adding more production from non existent sources. The best that it can do is to accelerate the rollout of THAI/CAPRI production in the Athabasca tar sand to match that of Saudi Arabia. This at least means that North America will be able to fully internalize its oil industry over the next decade and not be subject to beggar my neighbor behavior around the globe.

The immediate fix must come from a swift conversion of the global transportation industry, and by this I mean trucking in particular and certainly the rail industry, to a LNG fuel system. It is still fossil fuel but we can tolerate that form for a long time and supplies will remain ample for more than enough time to transition to many other alternatives. The USA alone will release about half of its oil demand back into the market and I suspect that the rest of the globe can do exactly the same. That alone can take global oil demand down to the 50,000,000 barrel per day mark. This means that we actually have a good temporary fix that could be used unwisely for a few decades and backed up with one hundred years of viable reserves.

Simultaneously it behooves us to strongly support the establishment of a large and cost competitive ethanol industry based on alternative organic sources and to support any other promising initiatives. There are a lot of surprises out there trying to happen that need mainly a fair and responsive regulatory environment from all levels of government.

The demand for personal transportation is going to increase globally ten fold over the next two generations and it will need to have a convenient fuel source that is unlikely ever to be satisfied outside of short haul travel by electric storage. Ethanol is certainly the next best option in terms of the chemical fuels.